Why Gonzalo Martin-Villa Is Kissing Frogs

Gonzalo Martin-Villa is on a mission to find the most innovative technology startups that his company, Telefónica Digital, can work with. And to do that, he needs to engage with an awful lot of entrepreneurs.

"As you English say, we need to kiss a lot of frogs to find the prince," he joked during a recent day of media presentations in London.

It won't be long before Martin-Villa has chapped lips: Wayra, the division of Telefónica Digital that he runs, invested in more than 140 startups in its first 14 months (to June 2012) and aims to invest in up to 250 startups each year now that it has an international presence.

So why is a small part of Telefónica SA (NYSE: TEF), the Spanish operator with more than 310 million customers in Latin America and Europe, behaving like an angel investor in a hurry?

Wayra to go!
Telefónica Digital was born in September 2011 with a mission to operate and behave unlike a traditional telecom operator: Its mission is to be a digital applications and technology specialist, focusing on new-generation services and technologies such as cloud, M2M, advertising, security and other emerging services sectors. (See Telefónica's Looking Trendy and Telefonica Holds Key to Digital Model.)

Finding and fostering innovation is a key part of its remit, so it created a startup incubator process that begins with a "Campus Party" to identify exciting startups, followed by nurturing by Telefónica staff in academies, combined with seed funding of up to €50,000/US$61,707 (for a small stake). Wayra can then provide access to further funding from external investors and help the startup on its way, setting it loose to grow as it brings new startups into the academies. (See Telefónica to Hatch Startups .)

Among those startups, Wayra hopes to find some that will become Telefónica Digital partners and help stoke the operator's innovation engine.

"We need to go beyond the traditional boundaries, but there is no silver bullet -- we need to be in contact with lots of innovators and innovation happens outside of telcos!" says the affable Martin-Villa. "We need to get a window on future trends and find innovative products for our customers in the near-term."

Up to June this year, Wayra had received 12,000 applications and had invested about €7 million ($8.6 million) in its 140 startup hopefuls. Martin-Villa needs to find some princes among the frogs: "Wayra is a business -- we need to generate a direct financial return. We need to be sustainable," he says, adding that more than 65 percent of Wayra-funded firms are now in "commercial mode" and some are "in the Telefónica pipeline," though it'll likely be a while yet before he'll be able to recognize any returns from his investments.

Wayra has 12 academies currently in 11 countries (where Telefónica is operational) and has invested in startups with a broad range of focus areas, including e-health applications, M2M, video services, security, cloud applications and social networking.

Among the companies it has invested in are:

• Instant customer satisfaction ratings app developer Emtrics;
• Identification verification app developer Positive ID;
• Automated complaint resolution systems specialist Cognicor;
• Healthcare interfaces application developer TedCas, described by Martin-Villa as the "Minority Report for doctors";
• Instant Wi-Fi sign-on app developer Blue Butterfly Digital Ltd.
  
  

What's next for Martin-Villa? Well there are plenty of startups to engage with, but that doesn't mean Wayra won't look outside Telefónica's existing markets. Telefónica Digital recently announced an applications R&D partnership with Middle East powerhouse Etisalat , so it's possible this model could get outsourced to such partners. (See Telefónica Bangs Its Digital Drum.)

"And I'd love to have academies in Israel and China," adds Martin-Villa.

Never say never.

— Ray Le Maistre, International Managing Editor, Light Reading